1 / 14

Student Loan Update

Credit Crunch is Impacting Student Loans. Secondary markets and non-bank providers are currently unable to access capital to make or buy loans.Cuts to student loan yields for lenders were passed by Congress last fall.These two factors have resulted in lenders suspending, withdrawing or cutting b

derron
Download Presentation

Student Loan Update

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

    1. Student Loan Update Steve McCullough CEO, Iowa Student Loan May 1, 2008

    2. Credit Crunch is Impacting Student Loans Secondary markets and non-bank providers are currently unable to access capital to make or buy loans. Cuts to student loan yields for lenders were passed by Congress last fall. These two factors have resulted in lenders suspending, withdrawing or cutting back on student lending.

    3. Lenders Withdrawing or Cutting Back Over 50 lenders, One third of Top 100 Originators. $6.7 Billion in Private Loans. Most recently Sallie Mae, NelNet, Bank of America and Citibank made announcements. JP Morgan Chase had been the contrarian, saying they would expand. Now they have reversed their decision.

    4. Senate Banking Committee Chairman Dodd In his recent letter to Fed Chairman Bernanke “the problem is not with the fundamental credit quality of Stafford loans, or AAA-rated, private loan assets, but rather due to a breakdown in the markets which have been the primary funding sources for student loans – the auction-rate-securities market and the market for student loan backed securities. As you know, the auction rate market is largely paralyzed and there has been little, if any, funding of student loans through securitizations. In fact, no originator of private student loans has been able to access traditional securitization markets since September, 2007. “ http://dodd.senate.gov/index.php?q=node/4379

    5. Possible Federal Responses U.S. Department of Education as secondary market of last resort – HR5715 passed the US House and was endorsed by the President– loan servicing rights should stay with current servicer. Federal Reserve adding student loans to its Term Financing Facility. Federal Reserve lending money directly to Student Loan Secondary Markets.

    6. Preferable Federal Actions Federal Funding Bank buying student loans asset-backed securities or putting in a standing bid. U.S. Department of Education signing standby loan purchase agreements.

    7. Preferable Federal Actions Federal Home Loan Bank accepting student loans as collateral or making Letters of Credit available. These actions might restart student loan auction rate securities market.

    8. In Iowa – Guaranteed Loans ISL has asked its lender clients to make government guaranteed loans and hold them on their balance sheets, utilizing ISL as servicer, until such time as ISL can access capital. Over 100 Lenders have stepped forward, pledging to make $110 million in student loans. Appears there will be sufficient funding available for guaranteed loans to students and parents this Fall – unlike other parts of the nation.

    9. In Iowa – Private Student Loans Without access to capital, ISL has suspended the private student loan program it offered directly to students. A significant number of students will not be able to stay in college without private student loans.

    10. In Iowa – Private Student Loans While Federal PLUS Loans are available to parents, the parent has to be willing and able borrow. There are some private student loan providers that are still offering loans with a qualified co-signer; however, some students cannot obtain a co-signer.

    11. In Iowa – Private Student Loans Iowa Student Loan is setting up lenders to start their own private loan program on a turnkey servicing arrangement. While higher risk, these loans charge higher rates and fees to cover risk.

    12. In Iowa – Private Student Loans Iowa Student Loan has 13 years of experience making private loans to students. Iowa Student Loan has an on-line application, digital signature, automated underwriting systems, accounting and experienced collectors.

    13. Participation Trust for Private Student Loans Lenders are asked to consider participating in a pool of private student loans, up to an amount determined by the lender. Loans priced to cover risk, discount to lenders. Trustee oversees collateral and servicer. Straight pass through of payments, net of servicing and trustee fees.

    14. State Legislation HF2690 Likely to be signed by Governor New requirements for Lenders and Colleges using preferred lender arrangements for student loans effective January 2009. New disclosure requirements, reporting of contributions to colleges and need to produce reports if requested, also effective January 2009. Attorney General to promulgate rules, enforce. IBA and ISL will provide training.

    15. Thank You ISL wishes to thank the lenders that have committed to providing federal student loans for this fall. Additional information will be forthcoming along with a servicing agreement. If you want to find out more about how your institution can participate in private student loans, contact: Steve McCullough or Suzanne Lowman Iowa Student Loan 515-243-5626 or 800-243-7552

More Related